A mortgage "stress test" has come into effect today as part of the federal government's new housing legislation aimed at mitigating unexpected financial pressures on homebuyers.
The test, which will be applied to insured mortgages with down payments below 20%, will assess a homebuyers ability to fulfill their mortgage obligations in the event interest rates rise to the five-year anticipated figure of 4.73%, or if a mortgage holder’s earnings are reduced.
“The intent of the new legislation is to keep buyers from getting in over their heads if market or earning conditions change,” says Marko Juras, REALTOR® with Fair Realty in Victoria.
The immediate effect, says Juras, will be most noticeable in the capital region’s Westshore where the majority of Victoria’s first-time, younger or lower-income buyers tend to focus.
“In areas where many buyers require insured mortgages, such as the Westshore which has the most affordable inventory in the region, we’re likely to see the largest amount of buyers having to reassess their buying power and reduce their mortgage requirements by upwards of 20%,” Juras said.
Overall one-fifth of the capital region’s homebuyers will undergo the government’s new stress test, which could translate to higher demand for townhomes and condos as buyers are priced out of the single-family-dwelling market.
And according to Landlord BC, an advocacy group for the province’s owners and managers of rental housing, obstacles to home ownership could also mean added pressures on the region’s ultra-low rental housing vacancy rates.
“Clearly this stress test will impact first-time buyers, and with that we’re going to see a two-fold impact on the rental housing market,” says David Hutniak, CEO of Landlord BC.
“First-time buyers no longer able to afford single-family homes with secondary suites, otherwise known as mortgage helpers, will focus on condos and townhomes. The implication of this is that wealthier buyers won’t necessarily need to rely on the secondary suite for added income and it will not enter the rental pool. And if young or first-time buyers are precluded from buying a condo or have to wait longer to save up a larger down payment, they will remain as renters for a longer period.”
Although the immediate effect on the market may be a slight easing of demand for all forms of housing, the long-term implication of the test is likely to result in a positive outcome.
“If someone can save a little longer or decide to purchase a less expensive home, that could turn out to be a blessing in disguise if things do not go as planned,” Juras said.
“The more people we can keep from running into financial trouble following a home purchase, the better it will be for the housing market and the economy.” C
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